In comments on Friday, Bank of England MPC member Saunders reiterated that interest rates would need to increase over the medium-term if economic developments met central bank expectations. He was also not convinced that the economy should be allowed to run hot to increase the labour supply. Nevertheless, he also noted that an important consideration at the December meeting would be the potential economic impact of the Omicron variant. The comments increased speculation that Saunders would not press for an immediate rate hike and the bank overall would decide against raising rates at the December meeting. Sterling edged lower following the comments and continued to lose ground during the day. Comments from Bank of England Deputy Governor Broadbent will be watched closely on Monday. CFTC data recorded a further increase in short Sterling positions to close to 39,000 contracts from below 35,000 the previous week, the largest position since late October 2019 as Sterling sentiment remains weak. An improvement in risk appetite helped stabilise the UK currency on Monday.
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11.30 BoE’s Broadbent Speech
The final Eurozone PMI services index for November was revised down to 55.9 from the flash reading of 56.6. A new era will begin this week in German politics as Angela Merkel is due to hand over power to Social Democrat Olaf Scholz. The new political grouping will be sworn in on Wednesday, subject to final approval by the Social Democrats, the Free Democrats and the Greens.
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US non-farm payrolls increased 210,000 for November after a revised 546,000 increase the previous month and well below consensus forecasts of around 550,000. Manufacturing and construction jobs both increased by 31,000 on the month. There was a dip in retail employment on the month while there was a sharp slowdown in employment growth in the leisure sector with the increase held to 23,000 for the month and government jobs also registered a further monthly decline. The unemployment rate declined sharply to 4.2% from 4.6% and below market expectations of 4.5%. According to the household survey, there was a very substantial increase of 1.13mn in the number of people employed with an increase in the participation rate. Average hourly earnings increased 0.3% on the month with the annual increase unchanged at 4.8% and below consensus forecasts of 5.0%. Although the increase in payrolls was below expectations, the report continued to indicate a strong labour market and the dollar reversed initial losses. St Louis Fed President Bullard stated that the labour market was very tight and that the tapering process should be speeded up while he wanted live meetings soon to discuss rate hikes.
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